THE latest trade agreement between Malaysia and the United States has been broadly welcomed by economists as a significant step towards strengthening trade certainty, deepening investment flows, and positioning the country as a “China-plus-one” manufacturing hub.
However, experts also caution that the deal could intensify competition for domestic producers and limit Malaysia’s gains from the parallel rare earth elements (REE) memorandum of understanding (MoU) if not paired with technology transfer and sustainable practices.
US President Donald Trump arrived in Kuala Lumpur on Sunday for the 47th ASEAN Summit and Related Summits, where he formalised the US–Malaysia Trade and Economic Cooperation Agreement.
The pact spans tariffs, digital trade, intellectual property, labour, the environment, and critical sectors such as energy and infrastructure. An MoU on REEs was also signed to promote cooperation on supply chains, processing and recycling, without binding financial commitments.
SPI Asset Management managing director Stephen Innes said the trade pact provides a “meaningful boost” to Malaysia’s trade diversification and investor sentiment.
“By securing tariff certainty with the United States and coupling it with a minerals MoU, Malaysia sends a clear signal that it is open for business as a stable ‘China-plus-one’ hub for technology and supply-chain investment,” he said.
“The deal reduces policy tail risk for exporters and manufacturers, and should begin to draw in fresh capital expenditure into mid-stream manufacturing and value-add services.”
However, Innes cautioned that “there is no free lunch in trade policy”.
“While the US–Malaysia deal is a clear win for diversification and investor optics, it also cracks the door wider for competition that local industries may not be ready for,” he said, noting that agriculture and smaller manufacturers could face pressure if cheaper or better-branded US products enter the market.
Under the agreement, Malaysia will grant “non-discriminatory or preferential” access for US agricultural goods, exempt American exports of agricultural and seafood products from the sales and services tax, and recognise any US halal certifier approved by the Department of Islamic Development Malaysia (Jakim).
Certain US farm goods such as pork, milk, and eggs will be permitted entry under annual tariff-rate quota limits at reduced or zero duties, though imports beyond those quotas will face standard tariffs.
Food producers have voiced concerns over safety oversight, market fairness and competitive balance. Innes described this as a “classic adjustment tax that comes with openness: short-term discomfort for the promise of long-term gain.”
Sunway University Business School professor of economics Yeah Kim Leng said the agreement “provides some clarity and certainty” for Malaysian exporters as the country navigates the current tariff environment.
“What’s left is for our industries to manage the impact of the tariffs,” he said. “Overall, Malaysia can live with it.”
Yeah said electrical and electronics (E&E) manufacturers, which remain largely unaffected by US tariffs, are expected to be the key beneficiaries. Innes agreed, adding that the E&E sector, including semiconductor assembly, testing and allied chemical producers, would likely see the most immediate gains.
In the minerals space, Innes said potential winners include firms involved in refining, magnet manufacturing and recycling, with secondary benefits for electric vehicle (EV) component makers, aerospace assemblers, logistics providers and industrial park developers.
However, he warned that Malaysia’s REE ambitions could be limited by technological constraints.
“Malaysia gets capital and technology exposure, but if it doesn’t move up the chain into magnets, motors, or EV components, it risks being boxed in as a low-margin processor,” he said. “The challenge now is less about signing new MoUs and more about ensuring Malaysia captures the value, not just the volume, while keeping enough policy room to navigate the next geopolitical pivot.”
Malaysia, which holds over 16 million tonnes of rare earth deposits valued at around RM1 trillion, currently supplies about 13 per cent of global demand but exports most of its ore to China due to the absence of local refining capacity.
Innes added that the environmental and regulatory challenges surrounding rare earth mining are “real”, involving waste management, federal-state licensing, and political sensitivities.
Yeah said rare earths could become a growth driver for Malaysia’s export diversification, but the key challenge lies in technology.
“Unless the United States transfers refining and processing technology equivalent or better than China’s, which controls over 80 per cent of global production, Malaysia may struggle to compete on cost and efficiency,” he said. “Even the United States may not have all the necessary technology, making it a big question mark for Malaysia.”
Yeah said Lynas Rare Earths, the Australian company operating in Kuantan, represents a potential bright spot, though it still imports rare earth concentrate from Australia rather than using Malaysia’s own deposits.
“The question is whether Lynas can increase production and whether it has the technology to process the rare earths found in Malaysia,” he said.
He cautioned that environmental risks must also be considered, citing the example of Asia Rare Earth Sdn Bhd, which was ordered to shut down in 1985 after radioactive contamination at Bukit Merah raised health and environmental concerns.
Yeah added that most of Malaysia’s rare earth deposits lie within natural forests, making deforestation a significant risk as the country seeks to expand its footprint in the global critical minerals market. - October 28, 2025
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